Explainer: Have workplace savings plans taken off in the GCC?

How popular are workplace savings schemes in the GCC?
Workplace savings schemes aren’t very prevalent in the GCC for expatriate workers. While there are existing labour laws that require employers to pay an end-of-service-gratuity to employees, as companies are not legally obliged to provide this in the form of a pension or workplace savings scheme, a large number of them choose not to put one in place.

How exactly do they work and how do they benefit businesses?
In many countries in the GCC, it is mandatory for companies to pay employees an end of service gratuity when they leave employment. This is therefore an ongoing liability for employers, and companies are required to account for this in their books. In a 2019 survey done by Willis Towers Watson, 96 per cent of respondents indicated that they account for end of service benefits (EoSBs) in local books.

However, since there is no legal obligation to fund this liability, a majority (88 per cent) of the organisations indicated that they do not set money aside to pay for EoSBs but settle employees’ benefits as they become due from company assets.

This approach can result in:

1. The company being exposed to an unfunded, open-ended liability
2. Non-payment of end of service gratuity to employees – as employers are not legally obliged to provide this in the form of a pension – in situations where an employer is in financial difficulties and/or becomes insolvent
3. Unpredictable cash flows, as payments would need to be made whenever an employee leaves the company

Having a workplace savings plan or a pension solution ensures that the employer sets aside a defined amount on a periodic basis towards their EoSB liabilities.

This approach eliminates the risks associated with lack of funding, and where such a plan is held in trust, the end of service gratuity amount is protected from creditors, in the event of insolvency or bankruptcy of the employer.

The existence of such plans within an organisation also provides clarity, increases transparency and builds employee confidence, and this is often considered a tool for attracting and retaining talent in a competitive environment.

In this region, which has a huge influx of expatriates, would they prove more or less favourable?
Schemes of this nature are particularly favoured by expatriates as they align with global best practices. We have seen that an increasing number of expats tend to remain longer than they might initially plan to in this region, and in conjunction with the recent measures to encourage expats to stay longer, we can expect a change in the attitude towards long-term savings and a stronger culture of financial preparedness. When this happens, it is critical that they can get easy and quick access to savings solutions that are suitable for their needs.

An employer that provides such a facility, through a workplace savings scheme, is providing them with a regulated and credible means to save for their retirement.

In companies where such schemes don’t exist, employees are exposed to the risk of non-payment with limited remedial options, especially if they do not have the financial means to take a legal route in instances where an employer fails to fulfill its end of service gratuity obligations.

Dubai’s DIFC DEWS plan was launched last year – how has it worked so far?
As DEWS, the region’s first fully-regulated employee savings plan, celebrates its first anniversary, the plan has enrolled 19,182 members from 1,187 of DIFC’s firms and now has $127m of assets under management. The scheme has successfully turned an unfunded liability into a recognisable and secure benefit.

The success of the initiative can be attributed largely to the simplicity of the plan and digital enablement, ultimately reducing the administrative burden on employers and empowering members to secure their financial future. The growing number of employees making voluntary contributions into the plan is a clear sign of the positive impact DEWS has had in encouraging regular savings.

Looking ahead, do you expect more pension plans or workplace savings schemes to be set up in the GCC?
The success of DEWS and the overwhelmingly positive feedback indicates that this is a welcome change and one that should now be considered as a best practice and extended beyond the DIFC. We are confident that it will encourage more employers to consider similar solutions for their employees.